105. Burba Inc. is considering investing in a project that would require an initial investment of
$200,000. The life of the project would be 5 years. The annual net cash inflows from the project
would be $60,000. The salvage value of the assets at the end of the project would be $30,000.
The company uses a discount rate of 17%.
Required:
Compute the net present value of the project.
11-103
106. Cascade, Inc., has assembled the estimates shown below relating to a proposed new
product. These estimates are based on a 5-year project life, at the end of which the new
equipment would be sold, working capital would revert to other uses in the company, and the
product would be discontinued. Cascade uses a discount rate of 18%.
Annual cash sales $420,000
Annual out-of-pocket cash expenses $330,000
Annual depreciation on new equipment $36,000
Initial cost of new equipment $200,000
Salvage value of equipment in 5 years $20,000
Working capital requirement $140,000
Required:
Compute the net present value of the new product.
107. Janes, Inc., is considering the purchase of a machine that would cost $400,000 and would
last for 5 years, at the end of which, the machine would have a salvage value of $67,000. The
machine would reduce labor and other costs by $109,000 per year. Additional working capital of
$4,000 would be needed immediately, all of which would be recovered at the end of 5 years. The
company requires a minimum pretax return of 12% on all investment projects.
Required:
Determine the net present value of the project. Show your work!
108. Weilbacher Corporation is considering the purchase of a machine that would cost
$240,000 and would last for 8 years. At the end of 5 years, the machine would have a salvage
value of $50,000. The machine would reduce labor and other costs by $72,000 per year. The
company requires a minimum pretax return of 16% on all investment projects.
Required:
Determine the net present value of the project. Show your work!
11-107
109. Vernon Corporation has been offered a 5-year contract to supply a part for the military.
After careful study, the company has developed the following estimated data relating to the
contract:
Cost of equipment needed $300,000
Working capital needed $50,000
Annual cash receipts from the delivery of parts, less cash operating costs $70,000
Salvage value of equipment at end of the contract $5,000
It is not expected that the contract would be extended beyond the initial contract period. The
company’s discount rate is 10%.
Required:
Use the net present value method to determine if the contract should be accepted.
11-109
110. The following data concern an investment project:
Investment in equipment $100,000
Annual net cash inflows $24,000
Salvage value of the equipment $10,000
Working capital required $50,000
Life of the project 5 years
Required rate of return 10%
The working capital will be released for use elsewhere at the conclusion of the project.
Required:
Compute the project’s net present value.
11-111
111. Juliar Inc. has provided the following data concerning a proposed investment project:
Initial investment $160,000
Life of the project 4 years
Annual net cash inflows $50,000
Salvage value $24,000
The company uses a discount rate of 12%.
Required:
Compute the net present value of the project.
